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French economy

Economy of France

This article addresses the current economic situation of France. For historical information, see Economic history of France.
France has one of the largest economies in the world. However, due to differing analyses and forms of measurement used, there has been some disagreement as to just how big it actually is, particularly when comparisons to the economies of other countries are made. International Monetary Fund data rank the French economy eighth largest by purchasing power parity (PPP) in 2007 at US$2,046,899 million. The World Bank, in 2008, estimated France's GDP in 2006 to be US$1,959,745 million, or seventh largest in the world by PPP. Rankings published by the CIA World Factbook in 2008 determine France's GDP, at $2.067 trillion, to be the eighth largest, again by measurement of PPP.

Background

GDP growth averaged 2% between 1994 and 1998, with 4% recorded in 2000 Like other continental economies, France's real GDP growth has been relatively weak. The unemployment rate is relatively high, at nearly 7.5% in February 2008 according to the International Labour Organization (ILO) statistics .

A rising trade deficit has had a malaise in the French economy since the global economic downturn in 2000. However, France's income inequality (measured by the Gini coefficient) has remained low compared to other economies where it has increased considerably. Moreover, France's poverty rate remains one of the lowest in the world , at 6% (compared to 15% in the United Kingdom and 12% in the United States) . However, it should be noted that definitions of poverty are conducted at a national level, and that such comparisons are not always accurate. France's income inequality (measured by the Gini coefficient) has remained low compared to other economies where it has increased considerably (most notably in the United Kingdom and the United States). About 10% of the households control 46% of the total patrimony (€8 000 billions), in comparison to the US where 10% of the population controls 71% of the total patrimony and where even the top 1% control 38% of the total patrimony. . Since 1991, due to the big rise of the level of the minimum wages (SMIC), the proportion of people employed at the minimum wages has increased from 8,1% of the total number of employees to 15,1% in 2006 . According to the INSEE, 27% of full-time employees in both private and public sectors earned less than 1,3 times the SMIC . In 2002, the INSEE counted 37,8% employees (part-time and full-time, CDD (Contrat à durée déterminée) and interim missions) earning less than 1,3 times the SMIC . In the average familial budget, the weight of forced expenses (accommodation, insurances, credits, taxes, etc.) has increased from 22% to 45% of the budget between 1960 and 2006 .

Government economic policy aims to promote investment and domestic growth in a stable fiscal and monetary environment. Creating jobs and reducing the high unemployment rate is the top priority of the French Government. In the 1990s, unemployment fell from 10% to 8.5%, although this rebounded to double digits after the dot-com crash, but currently, unemployment is back under 10%. France joined 10 other European Union countries in adopting the euro as its currency in February 1999. Since then, monetary policy has been set by the European Central Bank in Frankfurt.

Dirigisme and decline of dirigisme

Following the Second World War, Fifth Republic, France embarked on an ambitious and very successful programme of modernisation, under state impulse and coordination. This program of dirigisme, mostly implemented by right-wing governments, involved the state control of a certain industries, such as transportation, energy and telecommunication infrastructures, as well as various incentives for private corporations to merge or engage in certain projects.

However, dirigisme came to be highly contested after 1982 when newly elected socialist president François Mitterrand called for increased governmental control in the economy, nationalising many industries and private banks. By 1983 with the initial bad economic results the government decided to renounce dirigisme and start the era of rigueur ("rigour") or corporatization. As a result the government largely retreated from economic intervention; dirigisme has now essentially receded though some of its traits remain.

Despite significant liberalisation over the past 15 years, the government continues to play a significant role in the economy: government spending, at 53% of GDP in 2001, is the highest in the G-7. Labour conditions and wages are highly regulated. The government continues to own shares in corporations in a range of sectors, including banking, energy production and distribution, automobiles, transportation, and telecommunications.

Workforce and social relations

The French government intervenes in workforce relations in two ways:

  • through statutes and regulations issued by the national government, supplemented by a heavy body of jurisprudence;
  • through the enforcement of collective conventions resulting from bargaining between employers' and employees' unions.

The government imposes an hourly minimum wage (SMIC) of €8.27 (updated every July 1).

Unemployment has always been a concern of the French government since the end of the 1970s, although following to liberal economists some decisions were counterproductive (working hours reduction, discouraging of the 60-years-older workers(economic malthusianism) . However, a few economists think the unemployment will drop by itself when the baby boom generation retires from 2009 to 2020. See below for a discussion on the current measures against unemployment.

Working hours

exemptions from this law and tax-exemptions for overtime.

Unions and strikes

Membership in France's labour unions accounts for less than 10% of the private sector workforce (in 2003, 8.2% of the workforce) and is concentrated in the education, manufacturing, transportation, and heavy industry sectors. Most unions are affiliated with one of the competing national federations, the largest and most powerful of which are the CGT, FO, and CFDT.

French unions are fairly weak, and strikes are uncommon in most of the economy. Nonetheless, unions are powerful in some parts of the public sector, particularly public transportation (SNCF national railways, RATP Paris transit authority and air traffic control), where strikes have an instant effect on the general public and attract the attention of the national and foreign press.

Current economic issues

Unemployment

Chronically high unemployment has persisted since the 1970s; a number of attempts have been made since to curb the unemployment rate.

Since the re-election of Jacques Chirac to the presidency in 2002, the successive cabinets of Jean-Pierre Raffarin and Dominique de Villepin, have tried some moderately "liberal" approach to fighting unemployment: removing or weakening workforce legislation and lowering payroll contributions in order to stimulate employment.

When he was appointed Prime Minister in May 2005, Dominique de Villepin imposed one hundred day allowance on himself to implement policies for job creation. De Villepin has said that his policies will focus on "finding jobs where there are", in other words, helping micro-enterprises (businesses with fewer than 10 employees) that are struggling to expand due to financial disincentives and helping the unemployed back into work. The Government of Dominique de Villepin has implemented several measures to promote job creation:

  • Financial incentives
    • Income tax cut totaling €3.5 billion.
    • Encouraging unemployed young adults to work in sectors with labour shortages (i.e.: hotel industry, restaurants, etc.) by offering them a €1000 tax cut per year.
    • Offering a one-off financial reward of €1000 to a long-term unemployed person who finds a job.
    • Cutting taxes and Social Security contributions for businesses that hire apprentices.
    • Cutting taxes and Social Security contributions for businesses that provide "face-to-face" services (i.e.: hairdressers at home, helping the elderly, childcare).
    • Removing a "fine" for businesses that fire seniors.
  • Creation of new employment contracts

The French Government has found it necessary to introduce new types of contracts to help those who are most likely to be themselves unemployed, especially young adults.

  • The "First Employment Contract" (or CPE in French, meaning Contrat Première Embauche) concerned businesses with more than 20 employees who would need to hire young adults less than 26 years old. The two beneficiaries of this new employment contract will be employers and young adults. Employers will pay less Social Security contributions for 3 years and will be able to dismiss their employee at will for the first two years of the contract. Young adults would have benefited from the "CPE" as they will gain working experience in their chosen field. In the event of a dismissal, the employee receive government assistance and small financial compensation from their employer.
  • The "New Employment Contract" (or CNE, meaning Contrat Nouvelle Embauche) concerns micro-enterprises (business with less than 20 employees). It rewards employers who want to rapidly expand the size of their business by reducing Social Security contributions, eliminating financial disincentives to growth and by reducing the amount of paperwork associated with hiring employees. The first two years of the contract are to be considered as a test period, during which the employee is exempted from unfair dismissal cover and will receive government assistance in case of dismissal. Once the two year test period has lapsed, the employee will become a permanent full-time worker
  • Other measures
    • Reducing administrative procedures and paperwork associated with hiring more people for micro-enterprises.
    • Encouraging unemployed and unqualified young adults to work in the army to learn new skills.

    Left-wing parties and unions have criticised Dominique de Villepin's policies because they believe that jobs created will be insecure and poorly-paid. Under severe protest from left-wing parties and unions, Dominique de Villepin withdrew the CPE. Then the government of Nicolas Sarkozy withdrew the CNE.

    Budgetary reform

    The center-right governments of Jean-Pierre Raffarin and Dominque de Villepin, since Jacques Chirac's election in 2002, have had to face increasing budget deficits for the State and Social Security budgets. In 2004, Jean-Pierre Raffarin introduced legislation to reform the French Social Security system and to cut costs, thereby reducing its deficit. In both cases, this government had reduced taxes or contributions. The government also increased defence spending.

    Economists and successive governments contend that longer-term prospects of the economy demand that the retirement age should be raised (Lionel Jospin's gouvernment delayed the reirement reform, which began in 2003), and that the national health insurance regimes should be reformed to cut costs.

    Opponents, mostly from left-wing parties but also, to a lesser extent, from the Union for French Democracy (a centrist party in the ruling coalition), contend that the proposed reforms are not good for the country and thus rightly opposed by the population. According to them, Raffarin's reforms and spending choices hit hard on working-class people, while the government squanders public money on special interests through subsidies and tax cuts. They also contend that the alleged tax cuts are, in fact, effective transfers of spending from national to local taxes. In March 2004, Raffarin was dealt a severe blow in regional elections.

    In 2001, the French Parliament passed the "LOLF" (Loi d'orientation sur les lois de finances), a law which changed the way the budget was passed, executed and audited. The implementation of LOLF is phased, and the main dispositions were firstly applied in 2006. LOLF imposes that spending should be allocated to identifiable and auditable "missions", which provides better feedback to those who voted the budget about the efficiency of spending. The efficiency of this law is not yet high, but the 2007 "RGPP" (Revue générale des politiques publiques'') use it to reform budget and cut costs.

    Sectors of the economy

    Industry

    France, as with many modern industrialised nations, has a large and diverse industrial base. Leading industrial sectors in France are telecommunications (including communication satellites), aerospace and defense, ship building (naval and specialist ships), pharmaceuticals, construction and civil engineering, chemicals, and automobile production (3.5m units in 2005).

    Research and development spending is also high in France at 2.3% of GDP, the third highest in the OECD.

    Energy

    With no domestic oil production, France has relied heavily on the development of nuclear power, which now accounts for about 78% of the country's electricity production, up from only 8% in 1973, 24% in 1980, and 75% in 1990. Nuclear waste is stored on site at reprocessing facilities.

    In 2006 the net production of electricity in France amounted to 548.8 TWh, of which:

    • 428.7 TWh (78.1%) were produced by nuclear power generation
    • 60.9 TWh (11.1%) were produced by hydroelectric power generation
    • 52.4 TWh (9.5%) were produced by fossil fuel power generation
    • 6.9 TWh (1.3%) were produced by other types of power generation (essentially waste-to-energy and wind turbines)
      • The electricity produced by wind turbines increased from 0.596 TWh in 2004, to 0.963 TWh in 2005, and 2.15 TWh in 2006, but this still accounts only for 0.4% of the total production of electricity (as of 2006).

    Privatisation of EDF

    In November 2004, EDF (which stands for Electricité de France), the largest electricity provider in France, was floated on the French stock market, with the French State keeping more than 70% of the capital. EDF is not the only electricity provider in France. Other electricity providers include CNR (Compagnie nationale du Rhône) and Endesa (through SNET).

    Agriculture

    France is the European Union's leading agricultural producer, accounting for about one-third of all agricultural land within the EU. Northern France is characterized by large wheat farms. Dairy products, pork, poultry, and apple production are concentrated in the western region. Beef production is located in central France, while the production of fruits, vegetables, and wine ranges from central to southern France. France is a large producer of many agricultural products and is currently expanding its forestry and fishery industries. The implementation of the Common Agricultural Policy (CAP) and the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) have resulted in reforms in the agricultural sector of the economy.

    France is the world's sixth-largest agricultural producer and the second-largest agricultural exporter, after the United States. However, the destination of 70% of its exports are other EU member states and many poor African countries (including its former colonies) which face serious food shortage. Wheat, beef, pork, poultry, and dairy products are the principal exports. The United States, although the second-largest exporter to France, faces stiff competition from domestic production, other EU member states, and other third world countries. U.S. agricultural exports to France, totalling some $600 million annually, consist primarily of soybeans and products, feeds and fodders, seafood, and consumer oriented products, especially snack foods and nuts. French exports to the United States are mainly cheese, processed products and wine. They amount to more than $900 million annually.

    The French agricultural sector is heavily dependent upon subsidies from the European Union, which account for €11 billion. France is the main country in the EU that is against the reduction of subsidies. Subsidies have given France a competitive advantage which also demotes the concept of free trade. Specific government policies, such as the infamous reclassification of French wine as a 'health food' to avoid VAT, also goes a long way to create a thriving domestic sector.

    Tourism

    As France is the most visited country in the world with over 75 million visitors a year, tourism is a significant contributor to the French Economy. In the 1960s the government heavily promoted the development of skiing in the French Alps through the development of new high level resorts including some of the world's most extensive ski trails.

    Weapons industry

    France is the third largest weapons supplier in the world. The French arms industry's main customer, for whom they mainly build warships, guns, nuclear weapons and equipment, is the French Government. Furthermore, record high defense expenditure (currently at €35 billion), which was considerably increased under the government of Prime Minister Jean-Pierre Raffarin, have contributed to the success of the French arms industries. In addition, external demand plays a big part in the growth of this sector: for example, France exports great quantities of weaponry to the United Arab Emirates, Greece, India, Pakistan, Taiwan, Singapore and many others.

    External trade

    France is the third-largest trading nation in western Europe (after Germany and the United Kingdom). Its foreign trade balance for goods had been in surplus from 1992 until 2001, reaching $25.4 billion (25.4 G$) in 1998. However, the French balance of trade was hit by the economic downturn, and went into the red in 2000, reaching US$15bn in deficit in 2003. Total trade for 1998 amounted to $730 billion, or 50% of GDP--imports plus exports of goods and services. Trade with European Union countries accounts for 60% of French trade.

    In 1998, U.S.-France trade totalled about $47 billion--goods only. According to French trade data, U.S. exports accounted for 8.7%--about $25 billion--of France's total imports. U.S. industrial chemicals, aircraft and engines, electronic components, telecommunications, computer software, computers and peripherals, analytical and scientific instrumentation, medical instruments and supplies, broadcasting equipment, and programming and franchising are particularly attractive to French importers.

    Principal French exports to the United States are aircraft and engines, beverages, electrical equipment, chemicals, cosmetics, luxury products and perfume. France is the ninth-largest trading partner of the U.S.

    Regions economy

    The economic disparity between regions aren't as high as in Spain, Italy or Germany. If we take the Ile-de-France region out of the equation, then the four poorest regions—Nord-Pas-de-Calais, Picardie, Languedoc-Roussillon and Corse—lag by a reasonable margin per capita.

    The most powerful regions are Ile-de-France (4th agglomerations for her economy in the world), Rhônes-Alpes (industries, services, high-tecnologies), Provence-Alpes-Côtes d'Azur (services, industries, tourisms and wines), Nord-Pas-de-Calais (industries) and Pays de la Loire .

    Regions like Alsace, which has a rich past in industry (machine tool), are relatively wealthy without ranking very high in absolute term.

    The rurals area are mainly in Auvergne, Limousin, and Centre, and wines productions account for a significant amount of the economy in Aquitaine (Bordeaux region), and champagne for Champagne-Ardennes.

    List of French regions ranked by GDP total and per capita.

    Rang Région PIB
    (millions d'euros, 2005)
    PIB / hab.
    (euros, 2005)
    1 Île-de-France 480 870 42 712
    2 Rhône-Alpes 165 034 28 131
    3 Provence-Alpes-Côte d'Azur 120 365 25 693
    4 Nord-Pas de Calais 86 747 21 555
    5 Pays de la Loire 84 990 25 401
    6 Aquitaine 76 895 25 374
    7 Bretagne 73 511 24 443
    8 Midi-Pyrénées 67 486 25 140
    9 Centre 61 968 25 005
    10 Languedoc-Roussillon 53 197 21 752
    11 Lorraine 53 013 22 769
    12 Alsace 46 870 26 196
    13 Haute-Normandie 44 864 24 923
    14 Picardie 41 276 22 022
    15 Poitou-Charentes 39 286 23 311
    16 Bourgogne 38 733 23 880
    17 Champagne-Ardenne 33 550 25 093
    18 Basse-Normandie 33 253 23 099
    19 Auvergne 30 632 23 127
    20 Franche-Comté 27 016 23 782
    21 Régions d'outre-mer (2002) 22 891 13 375
    22 Limousin 16 326 22 664
    23 Corsica 5 846 21 508
    Source : INSEE

    Departements economy and cities

    Some Departements in France are very rich compared to others. Paris, Hauts-de-Seine (GDP per capita : €67000 in 2000) and Rhône, for example, concentrate a lot of headquartered. The Yvelines is the second richest departement in France according to the wages of habitants. In Hauts-de-Seine the wages are on average €28 000/capita, in Yvelines €27900, and in Paris €25000 against 15000 in France (data 2004 INSEE).

    Finally, in France like in other countries, a lot of cities are extremely rich in much of Regions, so the richest is Marnes-la-Coquette in Hauts-de-Seine with €81750/households (according to INSEE, data 2004)

    Other statistics

    GDP PPP & GDP Growth Rates 2002 - 2006 est.:

    Year GDP
    in billions of USD PPP
    % GDP Growth
    2002 1603.740 1.3
    2003 1641.774 0.9
    2004 1724.647 2.1
    2005 1811.561 1.5
    2006 1889.783 2.3

    Industrial production growth rate: 0.2% (2005)

    Electricity:

    • production: 536.9 TWh (2001)
    • consumption: 433.3 TWh (2001)
    • exports: 72.2 TWh (2001)
    • imports: 6.2 TWh (2001)

    Electricity - production by source:

    • fossil fuel: 8.2%
    • hydro: 14%
    • other: 0.7% (2001)
    • nuclear: 77.1%

    Agriculture - products: wheat, cereals, sugar beets, potatoes, wine grapes; beef, dairy products; fish

    Exports - commodities: machinery and transportation equipment, chemicals, iron and steel products; agricultural products, textiles and clothing and perfume

    Imports - commodities: crude oil, machinery and equipment, chemicals; agricultural products

    Currency: Euro (EUR) since January 1, 1999 for all financial transactions, euro banknotes and euro coins were introduced January 1, 2002. Previously was the French franc (FRF), the official exchange rate was fixed at 6.55957 French francs per euro.

    Notes and references

    See also

    External links

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